Pre-budget special: Allegra Spender MP on tax reform

Having worked as a business analyst at McKinsey, in the UK Treasury, as Managing Director of her late mother Carla Zampatti’s fashion label, and as CEO of the Australian Business and Community Network, federal MP Allegra Spender has seen the best and the worst of the tax system.

Change is vital, she says, particularly to address the growing issue of intergenerational wealth inequity.

Spender is currently consulting with various businesses and groups to seek their perspectives on the tax system, with the goal of releasing a tax reform green paper in August.

Q You’re consulting and seeking perspectives on the tax system, with the goal of releasing a tax reform ‘green paper’ in August. Why is reform needed – how fair and simple is the current tax system?

A I think there are several ways that our tax system is not fair. For instance, stamp duty. If you’ve been in the same house for 20 years, you paid stamp duty once, 20 years ago. You don’t pay it again. But if you’re someone who has been divorced, or who has had to move for work, or who bought a small flat to begin with, then a house, you pay a significantly different amount of stamp duty over that period.

I don't think that's fair. 

The way our tax system works means that, under certain circumstances, you pay a lot more tax than somebody else. 

Another discussion around fairness is intergenerational wealth. We are watching young people’s wealth go backwards relative to older generations. 

The Grattan Institute did research that shows between 2004 and 2016 the wealth of households headed by someone over the age of 65 increased by around 50%. At the same time, the wealth of households under the age of 35 didn’t go anywhere.

It’s brutal. 

So, intergenerationally we have a divergence happening. The same report says just 17% of older households pay income tax, while in previous generations, 27% of people in older households paid income tax. 

Q The IPA’s Pre-budget Submission makes the case that an over-reliance on personal tax receipts places too high a burden on individuals and creates risk for the government. How should the system change to address both issues?

A We tax working labour income relatively heavily, and we tax savings and investment income inconsistently and, in some cases, relatively lightly. I think those should be considered.

Then, we tax consumption relatively lightly. 

So, that’s why I think GST should be on the table, and it’s also why I’m considering things like whether the current level of capital gains tax discount is appropriate. 

Superannuation is also interesting. I think it’s an area that we should at least be considering.

Q What non-tax measures and supports could be introduced, removed or strengthened to aid small businesses, notably in innovation, e.g. the R&D tax incentives?

A I think this is a really interesting area. When I consider the priorities for the tax system, I’ve got three. One of them is the intergenerational unfairness. Another is about productivity and investment. The third is about climate transition. 

In terms of productivity and investment, I think it’s very challenging. I’m very concerned. Foreign direct investment has dropped. We are now a net capital exporter. Our levels of R&D are stubbornly low. This is a real concern. 

When I speak to the business community, the complexity and uncertainty around the R&D tax credit is problematic. They’re saying you have to spend 30% of your R&D tax credit on getting somebody else to do the work for you. 

Q The IPA calculates that about 90% of all tax revenue is generated by 10 of the 125 Federal and State taxes. The remaining 115 taxes simply add complexity. How can the system be made more efficient?

A I do think this is a problem. Complexity stops people from doing the things that are truly adding value to the economy. Instead, they spend their time wading through compliance paperwork. 

I support what the government has done in terms of removing some tariffs because they were complex. They added a burden and they weren’t raising a lot of money. 

On the [fringe benefits tax] FBT side, the evidence is that it costs more to comply with than what the revenue raises. 

I spent 10 years running a fashion business, doing FBT. When you’re focused on your customers, on your suppliers, on your team, and you want to do the right thing, then the more complex it becomes the harder it is to do that. 

It also becomes more likely that you’ll make a mistake. 

Q Do you support the establishment of a tax advisory board?

A I have been pushing for a Tax Reform Commission, which is somewhat similar. It’s a little bit like the Law Reform Commission. I’d see it as having a standing responsibility for looking at tax policy and providing external advice, but being able to self-start their work, rather than only having things referred to them.

Q Overall, how will you advocate for your key initiatives and what would success look like?

A As with most things in life, success has many mothers and fathers. There are a lot of people, including at the IPA,  who have been pushing for tax reform.

So, I feel that I’m part of a movement, a group of people or group of institutions that are identifying this and keeping it on the agenda. 

We will never get everything we want. That’s the way life works and it’s certainly the way politics works. But my goal is to push the Parliament to put tax on the agenda, and I think we’ve made a lot of progress on that. 

For me, the point of launching a [tax reform] green paper is to put concrete proposals out there, to get community and public interaction around them, and to see if there are areas where people can coalesce. Then, we can move that forward. 

The ultimate goal is in the next term of Parliament to make some shifts that deal with intergenerational inequity, that better deal investment and innovation, and that better deal with climate action through the tax system.

Join the IPA’s 2024 Federal Budget Breakfast on 15 May, virtually or in The Great Hall at Parliament House, for an in-depth discussion of theBudget announcements. Find out more.